Forrester Research(FORR) - 2019 Q4 - Annual Report

PART I Item 1. Business Forrester Research, Inc. provides global independent research, data, and advisory services, expanding significantly with the 2019 SiriusDecisions acquisition to help clients become customer-obsessed General Forrester Research, Inc. is a global independent research, data, and advisory firm, founded in 1983, focused on customer-obsessed strategies, and expanded with the 2019 SiriusDecisions acquisition - Forrester Research, Inc. is a global independent research, data, and advisory services firm, founded in 1983 and reincorporated in 1996, focusing on helping business and technology leaders with customer-obsessed strategies[13][14] - On January 3, 2019, Forrester acquired SiriusDecisions, Inc., a B2B sales, marketing, and product leadership company, to expand cross-selling, extend platforms, and accelerate international growth[16] Industry Background Enterprises face rapid digital changes and market disruptions, necessitating objective external advice on customer behavior, technology, and business strategy - Enterprises struggle with rapid digital changes and market disruptions, requiring external, objective advice on customer behavior, technology investments, and business strategy[17][18] Forrester's® Strategy Forrester's strategy aims to help clients achieve "customer-obsession" by providing market insights, strategic guidance, and execution advice, leveraging combined strengths - Forrester's strategy focuses on helping clients become "customer-obsessed" by providing insights into market changes, strategic guidance, and execution advice, leveraging the combined strengths of Forrester and SiriusDecisions[19][20][21] Forrester's Solution Forrester's solutions address key market imperatives for clients, including driving revenue with improving customer experience, differentiating with digital, accelerating growth with marketing innovation, using customer insights for competitive advantage, transforming IT, and securing customers/protecting brands - Forrester's solutions address key market imperatives for clients, including driving revenue with improving customer experience, differentiating with digital, accelerating growth with marketing innovation, using customer insights for competitive advantage, transforming IT, and securing customers/protecting brands[23] Products and Services Forrester offers diverse products and services including research, peer networking, certifications, analytics, consulting, and events Research Forrester provides distinct research products, including syndicated and operational intelligence, with subscriptions offering analyst inquiry access - Forrester offers two distinct research products: Forrester Research (syndicated, evaluative, and emerging tech research) and SiriusDecisions Research (operational intelligence, best practices for B2B marketing, sales, and product leaders)[24][25][26][27] - Research subscriptions include various access levels, with Member Licenses and SiriusDecisions offerings providing analyst inquiry for direct feedback and discussions[28] Connect Connect offerings facilitate peer and expert interaction through exclusive Leadership Boards and personalized Executive Programs for strategic support - Connect offerings facilitate peer and expert interaction through Leadership Boards (exclusive executive peer groups) and Executive Programs (personalized strategy support for C-suite leaders)[33][34][36][37] Certification Certification programs provide 8-week online courses for critical proficiencies, expanding to include CX, Zero Trust, and B2B Marketing - Certification programs offer 8-week online courses (Pro and Champ tracks) for critical proficiencies, initially in CX, and expanded in 2019 to include Zero Trust and B2B Marketing certifications[39][40] Analytics Analytics products include CX Index, Consumer Technographics, Business Technographics, and FeedbackNow for measuring and understanding customer and business technology adoption - Analytics products include CX Index (customer experience measurement), Consumer Technographics (consumer tech adoption insights), Business Technographics (business tech adoption insights), and FeedbackNow (real-time customer experience cloud solution)[41][46] Consulting Consulting services deliver focused insights and recommendations for technology and business strategy, leveraging proprietary frameworks and data - Consulting services provide focused insights and recommendations for technology and business strategy, including CX, digital transformation, and marketing, leveraging proprietary frameworks and data[42] Events Forrester hosts global events focusing on key business imperatives, significantly enhanced by the SiriusDecisions annual Summits - Forrester hosts events globally, focusing on key business imperatives, with the SiriusDecisions annual Summits significantly enhancing its event portfolio[43][44] Sales and Marketing Forrester utilizes a direct sales force segmented by client size and geography, supported by multi-channel marketing efforts to enhance brand and drive growth - Forrester sells products and services through a direct sales force segmented by client size and geography, with sales personnel increasing from 528 in 2018 to 698 in 2019[45] - Marketing efforts aim to enhance the Forrester brand, promote products, improve client experience, and drive growth through analytics, content, social media, PR, and multi-channel campaigns[47] - As of December 31, 2019, Forrester served over 2,800 client companies, with no single client accounting for more than 4% of 2019 revenues[48] Pricing and Contracts Revenue is categorized into research and advisory services, with agreement value increasing significantly in 2019 due to the SiriusDecisions acquisition - Revenue is categorized into research services (subscriptions) and advisory services and events (consulting, custom analytics, events)[49] - Agreement value, a key business indicator, increased by 34% to $358.0 million at December 31, 2019, with approximately 25 percentage points of this increase attributed to the SiriusDecisions acquisition[51] Competition Forrester competes with direct rivals, consulting firms, and indirect sources, emphasizing product adaptability, global data, and independent analysis as key advantages - Forrester competes with direct rivals like Gartner and various consulting/market research firms, as well as indirect competitors like internal client teams and free online resources[52] - Key competitive factors include product/service adaptability, global data, independent analysis, digital service delivery, pricing, and customer service quality[52] - Forrester's competitive advantages include its "Age of the Customer" strategy, research methodology, focus on emerging technologies, and growing digital product capabilities[52] Employees Forrester's employee base totaled 1,795 as of December 31, 2019, with a culture promoting client service, courage, collaboration, integrity, and quality Employee Count (December 31, 2019) | Employee Category | Count (Dec 31, 2019) | | :---------------- | :------------------- | | Total Employees | 1,795 | | Research, Connect, Analytics, Consulting, Events Staff | 688 | | Sales Personnel | 698 | - Forrester's culture promotes values such as client service, courage, collaboration, integrity, and quality through training and recognition programs[54] Item 1A. Risk Factors Forrester faces diverse risks including declining demand, economic downturns, international operational challenges, COVID-19 impacts, acquisition integration, debt management, and cybersecurity threats - Risks include declining renewals/demand for subscription and advisory services, adverse economic conditions, and operational challenges from international activities (21% of 2019 revenues from international sales)[55][56][57][58] - The COVID-19 outbreak is expected to reduce 2020 SiriusDecisions Summit revenues by $7.0-$9.0 million and operating income by $4.0-$6.0 million due to its conversion to a virtual event[59] - Integration difficulties with acquired companies (SiriusDecisions, FeedbackNow, GlimpzIt) and the realignment of SiriusDecisions operations into existing segments pose risks to realizing anticipated benefits[66] - Outstanding debt of $132.8 million from the SiriusDecisions acquisition could restrict business and affect financial condition, with covenants limiting financial flexibility[67] - Competition from direct rivals (e.g., Gartner) and indirect sources (internal client staff, free online information) could lead to pricing pressure and market share loss[69] - Fluctuations in operating results can be caused by market spending trends, subscription timing, advisory service utilization, event timing, new product introductions, hiring, currency exchange rates, and interest rate changes[72] Item 1B. Unresolved Staff Comments The company has not received any unresolved written comments from the Securities and Exchange Commission - No unresolved written comments from the Securities and Exchange Commission[76] Item 2. Properties Forrester's corporate headquarters is in Cambridge, Massachusetts, with global rented offices, and current facilities are deemed adequate for present and future needs - Corporate headquarters is a 190,000 sq ft office in Cambridge, Massachusetts, with other rented offices in San Francisco, New York City, Dallas, McLean, Nashville, Wilton (SiriusDecisions HQ), Austin, Amsterdam, Frankfurt, London, Paris, New Delhi, Singapore, and Lausanne[77][78] - The company believes its current facilities are adequate and future needs can be met with available lease options[79] Item 3. Legal Proceedings Forrester Research, Inc. is not currently a party to any material legal proceedings - Forrester Research, Inc. is not a party to any material legal proceedings[80] Item 4. Mine Safety Disclosures This item is not applicable to Forrester Research, Inc. - Not applicable[81] PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Forrester's common stock is listed on Nasdaq, with its quarterly dividend suspended in 2019 post-acquisition, and no stock repurchases occurred despite authorization - Common stock is listed on Nasdaq Global Select Market under "FORR"[84] - Quarterly dividend program was suspended indefinitely starting in 2019 due to the SiriusDecisions acquisition[84] Cash Dividends Declared and Paid | Year | Quarterly Dividend per Share | Total Dividends Paid (in thousands) | | :--- | :--------------------------- | :---------------------------------- | | 2018 | $0.20 | $14,502 | | 2017 | $0.19 | $13,631 | | 2016 | $0.18 | $12,987 | | 2015 | $0.17 | $12,179 | - As of December 31, 2019, $535.0 million was authorized for stock repurchases, with $474.9 million used to repurchase 16.3 million shares historically; no repurchases in 2019[85] Item 6. Selected Consolidated Financial Data This section presents selected consolidated financial data from 2015-2019, highlighting impacts from the 2019 SiriusDecisions acquisition, new accounting standards, and the 2017 Tax Cuts and Jobs Act Consolidated Statement of Income (Loss) Data (in thousands, except per share amounts) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :---------------------------------- | :----- | :----- | :----- | :----- | :----- | | Research services revenue | $298,735 | $228,399 | $216,471 | $215,216 | $210,268 | | Advisory services and events revenue | $162,962 | $129,176 | $121,202 | $110,879 | $103,458 | | Total revenues | $461,697 | $357,575 | $337,673 | $326,095 | $313,726 | | Income (loss) from operations | $(1,075) | $22,425 | $27,549 | $30,774 | $18,827 | | Net income (loss) | $(9,570) | $15,380 | $15,140 | $17,651 | $11,996 | | Basic income (loss) per common share | $(0.52) | $0.85 | $0.84 | $0.98 | $0.67 | | Diluted income (loss) per common share | $(0.52) | $0.84 | $0.83 | $0.97 | $0.66 | Consolidated Balance Sheet Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :---------------------------------- | :----- | :----- | :----- | :----- | :----- | | Cash, cash equivalents and marketable investments | $67,904 | $140,296 | $134,123 | $138,105 | $101,106 | | Working capital | $(76,895) | $46,108 | $41,766 | $45,962 | $15,274 | | Total assets | $639,160 | $353,524 | $345,200 | $335,785 | $318,991 | | Deferred revenue | $179,194 | $135,332 | $145,207 | $134,265 | $140,676 | | Long-term debt, net of deferred financing fees | $130,545 | — | — | — | — | | Total liabilities | $481,072 | $201,924 | $204,011 | $185,749 | $191,689 | - 2019 results include SiriusDecisions operations from acquisition date[92] - Adoption of Topic 842 (Leases) in 2019 increased operating lease assets and liabilities by $53.3 million[92] - Adoption of Topic 606 (Revenue from Contracts with Customers) in 2018 increased 2018 total revenues by $1.6 million and net income by $1.4 million[92] - Tax Cuts and Jobs Act of 2017 resulted in a decrease in U.S. corporate tax rate from 35% to 21% and a one-time transition tax on foreign earnings[92] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Forrester's revenue, expenses, and the significant 2019 SiriusDecisions acquisition impact, detailing accounting policies, operational results, segment performance, and liquidity Overview This overview details Forrester's revenue sources, the 2019 SiriusDecisions acquisition, key operating expenses, and updated client retention metrics - Revenue sources include subscriptions (Research, Connect, Analytics), reprints, advisory services, consulting, and events, with recognition methods varying by service type[93] - The acquisition of SiriusDecisions on January 3, 2019, for $246.8 million (net cash paid $237.7 million) was financed by $175.0 million debt and cash on hand[94] - Key operating expenses are cost of services and fulfillment, selling and marketing, and general and administrative[95] - Client retention, dollar retention, and enrichment metrics were updated in Q1 2019 to include virtually all client relationships and capture all enrichment at a client account level[96] Key Business Metrics (in millions, except percentages) | Metric | Dec 31, 2019 | Dec 31, 2018 | Absolute Change | Percentage Change | | :---------------- | :----------- | :----------- | :-------------- | :---------------- | | Deferred revenue | $179.2 | $135.3 | $43.9 | 32% | | Agreement value | $358.0 | $266.3 | $91.7 | 34% | | Client retention | 72% | 71% | 1% | 1% | | Dollar retention | 90% | 90% | — | — | | Enrichment | 106% | 109% | (3%) | (3%) | | Number of clients | 2,880 | 2,353 | 527 | 22% | - SiriusDecisions acquisition contributed 24 percentage points to deferred revenue growth, 25 percentage points to agreement value growth, and 17 percentage points to client count growth in 2019[100] Critical Accounting Policies and Estimates This section outlines critical accounting policies and estimates for revenue recognition, leases, goodwill, intangible assets, and income taxes Revenue Recognition Revenue is recognized upon transfer of control, with subscriptions recognized ratably and consulting/advisory services recognized over time or at a point in time - Revenue is recognized when control of products/services is transferred, with transaction prices allocated to performance obligations based on standalone selling prices[102][217][220] - Research, Connect, and Analytics subscriptions are generally recognized ratably over the contract term as a "stand ready" obligation[104][221][222][223] - Consulting project revenues are recognized over time using an input method (hours expended), while advisory services and event revenues are recognized at a point in time (completion of service/event)[103][225][226][227] - Management estimates the amount of prepaid performance obligations that will expire unused, recognizing revenue for this estimate over the period related rights are exercised[105][228] Leases Operating leases are recognized as ROU assets and liabilities based on present value of payments, with lease terms including reasonably certain extension/termination options - Operating leases are recognized as ROU assets and liabilities based on the present value of future minimum lease payments, using the incremental borrowing rate as the discount rate[106][243] - Lease terms include extension/termination options when their exercise is reasonably certain, requiring management judgment based on economic factors[107][243][244] Goodwill, Intangible Assets and Other Long-Lived Assets Goodwill is tested annually for impairment, while finite-lived intangible assets are amortized over 5 to 16 years and continually evaluated for impairment - Goodwill ($341.3 million as of Dec 31, 2019) is tested for impairment annually (November 30th) by comparing reporting unit carrying value to fair value, with no impairment found in 2019[107][108] - Finite-lived intangible assets (customer relationships, technology, backlog, trade names) are amortized over 5 to 16 years and continually evaluated for impairment[109][255] Income Taxes Deferred tax assets and liabilities are recognized for temporary differences, requiring significant judgment in multi-jurisdictional income tax calculations - Deferred tax assets and liabilities are recognized for temporary differences and operating loss carryforwards, with a valuation allowance recorded if realization is uncertain[110][256][257] - Significant judgment is required for income tax calculations in multiple jurisdictions, including transfer pricing and potential audit challenges[111] Results of Operations for the years ended December 31, 2019 and 2018 This section analyzes Forrester's operational results for 2019 compared to 2018, detailing revenue and expense changes, significantly impacted by the SiriusDecisions acquisition 2019 compared to 2018 This sub-section provides a detailed comparison of financial performance between 2019 and 2018, highlighting key changes in revenues and expenses Revenues Total revenues increased by 29% in 2019, significantly driven by the SiriusDecisions acquisition across research and advisory services Revenue Performance (in millions, except percentages) | Metric | 2019 | 2018 | Absolute Increase | Percentage Increase | | :---------------------------------- | :----- | :----- | :---------------- | :------------------ | | Total revenues | $461.7 | $357.6 | $104.1 | 29% | | Revenues from research services | $298.7 | $228.4 | $70.3 | 31% | | Revenues from advisory services and events | $163.0 | $129.2 | $33.8 | 26% | | Revenues attributable to customers outside of the U.S. | $98.8 | $83.4 | $15.4 | 18% | | Percentage of revenue attributable to customers outside of the U.S. | 21% | 23% | (2%) | (9%) | - SiriusDecisions contributed 22 percentage points to total revenue growth, 26 percentage points to research services revenue growth, and 16 percentage points to advisory services and events revenue growth in 2019[115][116][117] Cost of Services and Fulfillment Cost of services and fulfillment increased by 34% in 2019, primarily due to the SiriusDecisions acquisition Cost of Services and Fulfillment (in millions, except percentages) | Metric | 2019 | 2018 | Absolute Increase | Percentage Increase | | :---------------------------------- | :----- | :----- | :---------------- | :------------------ | | Cost of services and fulfillment | $196.7 | $146.5 | $50.2 | 34% | | As a percentage of total revenues | 42.6% | 41.0% | 1.6% | 4% | | Service and fulfillment employees (at end of period) | 776 | 639 | 137 | 21% | - $39.5 million of the increase was due to the SiriusDecisions acquisition[119] Selling and Marketing Selling and marketing expenses increased by 31% in 2019, largely attributable to the SiriusDecisions acquisition and planned sales employee growth Selling and Marketing Expenses (in millions, except percentages) | Metric | 2019 | 2018 | Absolute Increase | Percentage Increase | | :---------------------------------- | :----- | :----- | :---------------- | :------------------ | | Selling and marketing expenses | $172.9 | $131.8 | $41.0 | 31% | | As a percentage of total revenues | 37.4% | 36.9% | 0.5% | 1% | | Selling and marketing employees (at end of period) | 780 | 590 | 190 | 32% | - $33.4 million of the increase was due to the SiriusDecisions acquisition[121] - Forrester plans to increase sales employees by approximately 4% to 6% during 2020[121] [General and Administrative](index=26&type=section&id=General%2